When Louisiana voters go to the polls on Oct. 12, they will have a choice between two Republican opponents in the race for insurance commissioner: current commissioner, Jim Donelon, a former state legislator who has held the post since 2006, and Louisiana businessman and former insurance industry executive, Tim Temple.
In a conversation with Insurance Journal, Donelon explains why tort reform is needed to fix the state’s current crisis in the auto insurance markets – both personal and commercial, why he wants to keep his current job, and what’s on the agenda if his bid for another term as insurance commissioner is successful. Below is an excerpt from that conversation, edited for length and clarity.
Insurance Journal: What, in your opinion, are the primary functions of the Louisiana Department of Insurance?
Jim Donelon: I believe there are two and they’re interconnected. The first is our mission, which is to make insurance affordable and available for insurance consumers throughout the state. The second is to protect consumers in their dealings with their insurers. …
The primary responsibility in the consumer protection area is in the solvency arena. I am extremely proud of the way we have monitored insurers for their solvency during my tenure. We have not had to assess for guaranty fund purposes since I took office, on the P&C side. I’m not sure that’s absolutely true on the health side. There may be a small assessment or two that we’ve done. But it is at minimum if we have done that. On the P&C side I know we have not had to have done that at all.
Beyond that we have the duty to be the Better Business Bureau for insurance matters and interact with companies, agents, adjusters as necessary in our role as protector of consumers.
IJ: Why do you want to continue as insurance commissioner?
Donelon: For one thing, I enjoy what I do a great deal. It is extremely challenging and very important to our state. I have had a career of public service and have enjoyed the opportunity to serve my state in various roles. I look forward to continuing to do so. I am quite proud of what we have been able to accomplish during the 13 years that I have been in office, and recognize that we have challenges ahead of us that require the kind of focus, attention and effort that we put forth in areas since I took office to fix broken parts of our insurance market.
Of course, the most obvious was in the aftermath of Katrina and three weeks later Rita that devastated our property insurance market. I am pleased to tell you that despite the exodus of major national carriers from coastal exposure, not just in our state but in every coastal state, we now have 31 new to our market small regional carriers, reinsured up to their chins competing with each other for property insurance business. And that has resulted in consumers paying 1% per year increases for the past five years on their homeowners policies. That’s remarkable. It really has been successful beyond our greatest expectations in the aftermath of Katrina and Rita.
IJ: How would you describe the current state of Louisiana’s insurance market?
Donelon: It’s really, really in a very robust status, with one exception. And that is the exception that has plagued our state for as long as I have been involved in the insurance area.
I served my last six years in the Legislature as chair of the House Insurance Committee before moving over to the insurance department. … Throughout that time and before, we have always been a top 10 most expensive state for automobile insurance.
Today we are in worse shape than that on the commercial auto side. It’s burdening our truckers and our school bus drivers and our non-emergency medical transport companies with unaffordable levels of commercial auto insurance costs. And that is the crisis of the moment.
We have had crises before, in the med malpractice area back in the ’80s, in the workers’ comp area in the ’90s and in the property insurance area after Katrina and Rita. We’ve resolved those and there are no issues that are burdening our consumers in any of those three arenas.
But auto insurance continues to be a huge burden for our consumers, both on the personal level as well as the commercial. …
We have the major national writers and some regional writers in the personal auto arena still writing today. A limited number are writing new business. The State Farms, the Liberty Mutuals, the Allstates, Progressives, are all active in our market but they start and stop writing new business periodically. That’s because it has not been profitable in recent times for them to write auto insurance in our state.
On the commercial side it has become prohibitively expensive and even hard to get companies to write at those extraordinarily high rates even.
IJ: What’s keeping those markets so troubled?
Donelon: Beyond question is our highest in the nation claims-to-litigation ratio. We have a tort system that’s broken, that needs to be fixed. I addressed it as a legislator back in 1998 with the first version of what was called the Omnibus Premium Reduction Act. We have had three more versions over the years up to and including the just concluded legislative session where the House passed on a huge bipartisan majority vote – the House Omnibus Premium Reduction Act Number Four – over to the Senate side where it met its demise in what I refer to as the lawyer committee but it really is officially called the Judiciary A Committee, where legislation affecting tort issues is sent. And they killed it.
We have three areas where we are a significant outlier in the tort arena. One of those is jury threshold. Another is a direct action statute. The third is our short prescriptive period of only one year. And frankly that third one is pointed to by the trial lawyers as a reason for our extraordinary claims-to-litigation ratio.
Those of us looking to reform our tort law said, ‘OK if that’s a problem, let’s fix that as well. We’ll do all of it at the same time.’ But that didn’t suffice to get their opposition to lowering the jury threshold and repealing the direct action provision.
IJ: What other kinds of tactics might be employed to incent companies to provide more coverage or more robust coverage?
Donelon: One thing might be to lower our very high auto premium tax. Not just auto but all premium tax is among the highest in the nation. That has proven to be a difficult hurdle because until just the past year or two we have had a very tight budget in our state so asking for tax reductions was next to impossible. But that would be one way to incentive companies to come to our market. …
We need tort reform. And with it, we need more companies to take the opportunity to come do business in our state under a new set of rules that is not so onerous for auto insurers in our judicial environment. We have been described by national business groups as being judicial hellhole in Louisiana. Our Farm Bureau says they are a part of a six-state holding company — Farm Bureau Property and Casualty Company in Jackson, Mississippi, a multi-billion dollar company — and that in those six states — Colorado, Arkansas, Louisiana, Mississippi, North Carolina and Florida — year in year out … we have 17% of the auto policies in place in those six states, and year in year out at least six years running now we have 51% of the pending lawsuits but 17% of the auto policies.
IJ: If elected, what would be some of the first initiatives you would pursue?
Donelon: I will re-initiate the effort to address tort reform and look at opportunities to incentive companies to come to our state to write auto insurance. That’s priority one — auto insurance, both personal and commercial. …
We also have challenges as in all the 50 states in the health insurance arena. Rates have dropped this year for the first time since Obamacare was passed, but in the years before that we saw the same double-digit rate increases annually that everyone else did. I have been tasked now by the legislature in this past session with putting in place a replacement for the Affordable Care Act, Obamacare, in the event the Supreme Court finds it to be unconstitutional as the district court did recently.
IJ: What message would you like to convey to insurance agents and brokers in Louisiana?
Donelon: That we are there for their needs and the needs of their consumers, their policyholders. We have a very robust consumer protection division that as I mentioned earlier serves as a Better Business Bureau for insurance issues in our state. That we are very cognizant of the crisis in the auto insurance market and we are committed to addressing it through legislation in the next session, as we have successfully done in the med mal, workers’ comp and property insurance areas when they were in crisis.
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